Friday, October 11, 2013 - We Have Met the Enemy

We Have Met the Enemy

by Sinclair Noe

DOW + 111 = 15,237
SPX + 10 = 1703
NAS + 31 = 3791
10 YR YLD un = 2.68%
OIL – 1.22 = 101.79
GOLD – 13.20 = 1274.20
SILV - .34 = 21.44

The Nobel Peace Prize was awarded to the OPCW, the Organization for the Prohibition of Chemical Weapons, the international chemical weapons watchdog helping to eliminate the Syrian army's stockpiles of poison gas. Its inspectors have just begun working in the active war zone, and the Norwegian Nobel Committee said it hopes the award offers "strong support" to them as they face arduous and life-threatening tasks.

Overall consumer confidence decreased from 77.5 in September to 75.2 in October, according to the Index of Consumer Sentiment published by Thomson Reuters and the University of Michigan. The economic expectations index in the survey also fell from 67.8 in September to 63.9 for October, reaching the lowest level so far this year as consumers reported less optimism about the course of the economy for the next 12 months.

In what has become an almost daily occurrence, Thursday night brought another poll, this one from NBC and the Murdoch Street Journal, showing that Americans really don't like the politicians.

A recap: Only 24% of Americans had a favorable view of Republicans, the lowest figure in the poll’s multi-year history and four percentage points lower than last month. Another low: only 21% had a favorable view of the tea party. Obama's standing was relatively stable, moving from 45% favorable last month to 47% now, within the poll’s margin of error of 3.5 points. Democrats overall were at 39% positive, with congressional Democrats at 36%. And 70% of Americans said Republicans were putting politics ahead of what was best for the country. A lesser 51% said that about Obama.

The poll also shows  the GOP-Tea Party efforts to defund or delay Obamacare—the demand which directly led to the government shutdown—has brought about a seven point increase in popularity of the law. Immediately prior to the shutdown, only 31 percent of Americans believed Obamacare was a good idea. Today, that number is 38 percent.

To paraphrase Pogo, the GOP has met the enemy, and they are it.

It looks like the politicians might be getting closer to some sort of deal to avoid throwing Treasury bonds into a financial abyss. The idea is to combine a government funding bill (which would end the shutdown) along with a debt-ceiling increase (which would avoid a default) along with a repeal of the medical device tax in Obamacare (which has nothing to do with Obamacare and is just a bone to throw at the GOP). The deal would avert default for 6 weeks, and would demand negotiations on a variety of issues including spending levels, means testing for entitlements, chained CPI for Social Security.

President Barack Obama has been adamant that he will not negotiate over anything while the government is shut down and the debt limit is held hostage. According to a New York Times report, Obama thinks the Republicans are demanding too much, saying “The only thing not on their list is my own resignation.” The paper also reported that Obama told a group of Democrats that “If he gives in now, Republican demands would be endless.” The sides would have to figure out some sort of agreement to get past that obstacle. If the House Republicans don't move fast to cut a deal with themselves that the White House can support, the Senate appears ready to step in and take over.

Something might get done. That's what Wall Street traders were betting on yesterday and today. But the important point is that it hasn't happened yet. Which means that average ordinary citizens need to maintain pressure on the politicians, and there are two ways to do that: get drunk and then drink coffee.

Now you can get drunk and dial up Congress in a very random way and spout something so intelligent that your representative will feel compelled to end the partisan nonsense.

Drunkdialcongress.org connects the disgruntled to the House of Representatives. You can enter your phone number into the website and an inebriated voice from a 1-800 number will call you back and ask, “Is this government shutdown making you want to drink?” before transferring to Capitol Hill so that you can “tell them what’s on your mind and tell them to get back to work.”

The site, created by the mobile ad firm, Revolution Messaging, offers talking points like “I can’t watch the panda!” or “Why don’t you make yourself useful and at least mow the lawn?” For those who need help selecting their form of liquid courage, there are also recipes for drinks like “the bad representative” (three parts liquor, one part lemon juice).

After you sober up, you can go get a coffee at Starbucks and sign a petition begging Washington to end the shutdown. Yea, this isn't such a great idea either. I've always thought there was a problem with Starbucks' semantics: “grande” means medium, “tall” means small, and “magna cum laude” means barista, and “barista” means someone who works slightly less than full-time and therefore does not qualify for corporate health insurance. Plus, I'm not sure if the long term solution that Starbucks CEO Howard Schultz wants is the same solution I want. Plus, the coffee tastes like it's been burned.

It's earnings reporting season and today JPMorgan Chase reported a loss of $380 million. This is the first quarterly loss for JPMorgan under the reign of Jamie Dimon. The loss was connected to legal expenses. Dimon tried to explain that, “While we had strong underlying performance across the businesses, unfortunately, the quarter was marred by large legal expense.” The financial press picked up on that and the refrain was … leaving regulatory problems aside... JPMorgan would have turned a profit. But it was more than regulatory problems, it was legal problems. Big difference.

Of course that is a problem encountered by illegal enterprises of all stripes; crime doesn't pay; not in the long run. Earlier this year, when Dimon faced a shareholder referendum over his fitness to serve as both chairman and CEO of the legally besieged bank, some big Wall Street names came to his defense with a flawed rationale: the company was booking record profits; who cares about anything else? Maybe it's time to rethink.

Today, I saw Maria Bartiromo on CNBC trying to say the banks had done everything right and we should blame the regulators for not doing their jobs. That debate should be laid to rest. Just because the cops don't stop the crime, it doesn't mean the criminal is innocent.

And even if you get past the multi-billion dollar legal problems, the banks still have another problem. Mortgage production at JPMorgan Chase and Wells Fargo fizzled in the last quarter as fewer borrowers sought to refinance their home loans amid rising interest rates. Wells Fargo felt the most pain from rising rates. The bank reported $1.6 billion in mortgage banking income for the third quarter, a 43 percent drop from the same period one year earlier.  The slowdown reflects a shift in the housing recovery, which has largely been relying on refinance activity. The number of loans eligible for interest rate reductions dropped and interest rates have been higher, and if the Fed tapers, rates will move higher still. And if the politicians can't come up with some sort of deal over the weekend and if we actually see a default, you don't even want to imagine what will happen to rates.

About one week ago, it started to snow in South Dakota, the wind kicked up to 60 mph, and there was more snow; blizzard conditions; five feet of snow in some places. Cattle ranching is big business in South Dakota, about a $5.2 billion dollar industry. When the freak early snowstorm hit, the cattle hadn't yet grown a winter coat; it killed a lot of cattle, maybe 20,000, plus a yet to be determined number of horses, sheep, and other livestock. Losses like this would be enough to cripple many ranchers even in the best of times, especially with the loss of future calves next spring whose would-be mothers were killed, but with the federal Department of Agriculture still shut down, ranchers are cut off from the livestock insurance that would normally keep them afloat following a disaster like this.

The federal Farm Service Agency's livestock indemnity program, which offers compensation for lost livestock. As long as the government stays shut, FSA offices nationwide will be shut too, leaving ranchers without support.  Even before the shutdown, the insurance program was already threatened by delayed passage  of the new farm bill, which allocates money for a wide range of programs including food stamps and farm subsidies and what is basically insurance for farmers. While the shutdown debate rages, the Senate and House are still hashing out the farm bill, leaving the livestock indemnity program in midair.

There are about 8.5 million people in Switzerland, and of that total more than 100,000 have signed a petition which should result in a vote by the Swiss parliament on a modest proposal to provide a basic monthly income of about $2,800 to each adult in the country. The idea is called universal basic income and the basic idea is, no matter what you do, if you’re a resident, or a citizen you get a certain amount of money each month. And it’s completely unconditional: If you’re rich you get it, if you’re poor you get. If you’re a good person you get it, if you’re a bad person you get it. And it does not depend on you doing anything other than making whatever effort is involved to collect the money.

So far, the biggest opposition to universal basic income is from the left. They fear it threatens the existence of the existing social welfare systems there, because it’s very hard to finance both the full set and full range of social welfare institutions that exist already, and side by side to give people $2,800 a month.

Thursday, October 10, 2013 - Goodbye Jamaica

Goodbye Jamaica

by Sinclair Noe

DOW + 323 = 15,126
SPX + 36 = 1692
NAS + 82 = 3760
10 YR YLD + .03 = 2.68%
OIL + 1.35 = 102.96
GOLD – 20.60 = 1287.40
SILV - .21 = 21.78

Over the past few days we've been hearing that a government default wouldn't be a big deal; that a default wouldn't actually mean default. But it turns out that avoiding a default is a very good thing indeed. Hope over a deal in Washington put the bid back in stocks; and for right now it is just hope for a deal on the debt ceiling, not an actual deal yet; and quite possibly no deal on the government shutdown. We may not get the government running again but the politicians finally realized that they can't strap a suicide bomb vest on US Treasuries.

We may have a bunch of idiot politicians in Washington...,

Yeah, we do have a bunch of idiot politicians in Washington. And they still have a lot of work to do. Republicans in the House of Representatives offered a plan to postpone the default for 6 weeks; President Obama has indicated that if a clean debt limit bill is passed, he would sign it, even if the government remains shut down. That might be a stumbling point. In another potential wrinkle, the GOP plan might permanently ban the Treasury Department from using extraordinary measures to avoid default; so in some ways it isn't a truly clean bill; plus it is very short-term, meaning we get to go through this again around Thanksgiving.

The possible extension means there is the possibility of broader budget talks, including possible deficit reduction. The prospect of broad budget talks is reviving worries among some liberals that Mr. Obama would agree to steps to trim Social Security or Medicare benefits to win Republican concessions, and one area in particular seems ripe – the chained CPI. That remains to be seen.

Bloomberg is reporting on a conversation between Obama and John Podesta, an informal adviser and former chief of staff to President Clinton; just before Obama was re-elected, he vowed to Podesta that he would never again bargain with Republicans to extend the debt limit. The precedent, set in the agreement that ended a 2011 budget standoff, “sent a signal that this was fair game to blackmail over whether the country would default.” According to Podesta, “He feels like he has to end it and end it forever.”

The stand Obama has taken on the latest fight over the government shutdown and borrowing limit -- refusing to tie policy conditions to raising the debt ceiling -- is an attempt to repair some of the damage that he and his aides believe he sustained by making concessions to Republicans to avert a default two years ago.

The Republicans will renew their attack on Obamacare. Heritage Action, the Koch brothers funded, conservative group leading the charge against the health care law has agreed to raising the debt limit but maintains that any measure re-opening the government would be met by demands for killing Obamacare. Just in case you were wondering why something is happening now, it's because the big money players from Wall Street and Big Oil were getting worried, and they started pulling the strings. We may have a bunch of idiot politicians in Washington, but they're the best idiot politicians money can buy. And this is why it is too early to say the deal is in the bag. Conservative Republicans might not throw their support behind Boehner's plan. Boehner made no mention of Obamacare this morning during his remarks.

So, we get a possible, temporary impasse on the debt ceiling, and no movement on the government shutdown, and the Dow industrials jump 300 points. Just imagine the temper tantrum Wall Street would have thrown if we had defaulted.

And then the cherry on top is that all of the fiscal dysfunction means the Federal Reserve FOMC is less likely to take action when they meet October 29-30, especially in light of the damage done by the shutdown. Then you also can consider the nomination of Janet Yellen, a dove, likely to prefer monetary stimulus to backsliding. Yesterday, the Fed released minutes of the September FOMC meeting and one of the concerns dealt with the “considerable risks surrounding fiscal policy.”

There are risks to fiscal policy. Today, a report that initial claims for unemployment benefits jumped 66,000 last week to 374,000. Exactly how much economic damage results from the shutdown will be hard to determine. Pollster Nate Silver, the guy who actually got the numbers right on the election, says the media is probably overstating the magnitude of the shutdown's political impact. Remember Syria? The fiscal cliff? Benghazi? The IRS scandal? The collapse of immigration reform? All of these were hyped as game-changing political moments by the news media. Yeah, not so much. Of course, if the not-yet-done deal doesn't get done and we go into default or if the shutdown lasts a long time, then the magnitude of the impact is being understated.

And all those polls you're seeing suggesting that the GOP is cratering with regards to public approval, and pulling the Democrats down with them, well all those polls probably won't translate in changes in the re-election efforts of incumbents, or the makeup of the House or Senate. And according to Silver's analysis the degree of polarization in Congress is higher than at any point since the Great Depression by a variety of measures, and is possibly at its highest point ever. It is very partisan, and that means there is a great amount of uncertainty. And so the Fed FOMC minutes were correct, there are risks to fiscal policy.

So, the markets bounced today, but it's not a done deal.

Something else I wanted to cover today. With all the political insanity, you might have missed an important story in the journal Nature. Try to think back to the hot days of summer. Now try to remember the hottest summer of the past 20 years. It's tough to put the exact date on it but we can all remember some brutal heat in the desert southwest; a hot spell where temperatures topped 110 or 115 for several days in a row. Well, there will come a time when we'll look back on those days as the good old days. Within a generation, whatever climate we were used to will be a thing of the past. The hottest, most extreme weather will be the average.

According to the new study, the mean annual climate of the average location on Earth will slip past the most extreme conditions experienced during the past 150 years and into new territory by between 2047 and 2069, depending on the amount of climate-warming greenhouse gases that are emitted during the next few decades. Once a location reaches the transition point, the average temperature of its coolest year will be greater than the average temperature of its hottest year for the past 150 years. Even more strikingly, the study found that the oceans, which have absorbed about half of the man-made carbon dioxide (CO2) emissions since the dawn of the industrial revolution 250 years ago, exceeded their historical bounds of pH measurements back in 2008. In other words, the oceans are becoming highly acidic.

Even with aggressive cuts in greenhouse gas emissions, the study found, the projected near-surface air temperature of the average location on Earth will move beyond historical variability in about 56 years from now. A business-as-usual scenario in which emissions continue on their current upward trajectory would see an unprecedented climate occurring 20 years sooner than that, in 2047. And they even break it down by city. New York will reach a tipping point by 2048; Los Angeles will get to the point of no return in 2048; Mexico City in 2031; Phoenix is 2043; and Kingston Jamaica will be there in 10 short years.

The boundary of passing from the climate of the past to the climate of the future really happens surprisingly soon. The study shows that tropical areas, which contain the richest diversity of species on the planet as well as some of the poorest countries, will be among the first to see the climate exceed historical limits — in as little as a decade from now — which spells trouble for rainforest ecosystems and nations that have a limited capacity to adapt to rapid climate change.

According to the study, conducted by a team from the University of Hawaii, about 1 billion people currently live in areas where the climate will exceed historical bounds of variability by 2050. This number would rise to 5 billion people under a business-as-usual emissions scenario, which is the emissions path the world is currently on. We could slow down, by cutting emissions we might buy more time until we hit the tipping point, but according to the new study, we will hit it.

The study is hardly the first to document the steady march toward hotter temperatures around the globe. Less than two weeks ago,the Intergovernmental Panel on Climate Change (IPCC) released its fifth report, describing a planet that is warming at an accelerated pace because of human activity. The past three decades have been the hottest since 1850, according to the panel established by the United Nations, which added that warming and sea-level rise will continue through the 21st century.

But by predicting the tipping point when traditional climates will be replaced by hotter futures, the new study provides a fresh way to look at the problem. There are several things we can start to look for, including changes in food production, especially from the tropics; water scarcity due to drought; and the prices will be affected as big agriculture responds, and much more, right down to specific locations.

Sorry Jamaica.

Thursday, September 26, 2013 - The Quotas Must Be Filled

The Quotas Must Be Filled

by Sinclair Noe

DOW + 55 = 15,328
SPX + 6 = 1698
NAS + 26 = 3787
10 YR YLD + .03 = 2.64%
OIL + .20 = 102.86
GOLD – 9.30 = 1324.80
SILV - .07 = 21.83

A couple of economic reports this morning with conflicting signals. The National Association of Realtors said its Pending Homes Sales Index, based on contracts signed last month, decreased 1.6 percent. At the same time, labor market data was more positive. Initial claims for state unemployment benefits dropped 5,000 last week to a seasonally adjusted 305,000.

And a little bit of research from the Atlanta Fed's macroblog that you probably didn't see; they report the pace of research and development (R&D) spending has slowed. The National Science Foundation defines R&D spending as “creative work undertaken on a systematic basis in order to increase the stock of knowledge” and application of this knowledge toward new applications.

R&D spending is often cited as an important source of productivity growth within a firm, especially in terms of product innovation. But R&D is also an inherently risky endeavor, since the outcome is quite uncertain. On top of that, the federal funding of R&D activity remains under significant budget pressure.

In the Countdown to the Shutdown, the Senate is expected to pass a government spending bill and send it back to the House of Representatives on Saturday, minus the defunding of Obamacare; the bill would be a so-called “clean” spending bill, dealing with spending and nothing else. House Speaker John Boehner says he doesn't like that and the House will try to tack on a measure to delay Obamacare for one year; they will also attach new spending cuts and other initiatives to a debt limit bill, something that Obama has said he would not tolerate.

If they can't figure this out, there could be a shutdown when we wake up on Tuesday morning. And despite near-universal acknowledgment that a shutdown is bad, it could happen. Investors have gone through such Washington brinkmanship before in 2011 and at the end of last year. There is a level of fatigue that has settled over the markets with regard to shutdowns and fiscal cliffs and political dysfunction. Last-minute deals emerged each time to kick the can down the road, and many investors believe this may play out again. Meanwhile, Treasuries have rallied from the expectation of taper to the fatigue of debt ceilings, and the only thing that seems to make sense is that the Fed wouldn't dare taper while Washington is in distress.

A new Bloomberg poll reveals most Americans say the country is on the wrong track: “Americans also are pessimistic about the course of the country, with 68 percent saying it’s headed in the wrong direction, the most in two years, according to the poll of 1,000 adults conducted Sept. 20-23.”

Note this is not a general malaise: “Americans’ negative feelings about Washington contrast with more optimistic views about their own prospects. Thirty-five percent of respondents expect their financial security to improve during the next year, up from 25 percent in December 2012.”

But for now, the circus is back in DC, and it's entertaining even if the act is stale. At least it would be fun if the whole thing didn't cost so much. So what has austerity cost us in the United States? The full price is hard to calculate, but the Congressional Budget Office figures that sequestration alone has cut GDP growth by about 0.8 percentage points. Since sequestration accounts for less than half of total belt-tightening over the past couple of years, a rough guess suggests that our austerity binge has cut economic growth by something like 2 percentage points—about half the total growth we might normally expect following a recession. Ironically, this means that we have indeed suffered the halving of economic growth that Reinhart and Rogoff estimated we’d get from running up the national debt above 90 percent. But we got it from not running up the debt. Go figure.

Jamie Dimon, the CEO of JPMorgan met with US Attorney General Eric Holder today, looking to cut a deal to end investigations into the bank's mortgage securities deals leading to the 2008 crisis. The talks might result in an $11 billion settlement; $7 billion cash and $4 billion in various forms of borrower relief; which is another way of saying it's really just a $7 billion dollar settlement, with some extra work for the accounting department on the side. Remember last year's multi-state, multi-bank $25 billion mortgage settlement? A new report shows the vast majority of the aid to borrowers came in the form of short sales and forgiveness of second mortgages. Just 20% of the aid doled out under the national settlement went to forgiveness of first-mortgage principal.

JPMorgan has been trying to negotiate a smaller settlement of perhaps $3 billion, but that lowball offer was rejected. A settlement of the government mortgage cases in the $11 billion range would likely include claims from the regulator of Fannie Mae and Freddie Mac, which has sought some $6 billion from the bank over risky mortgage securities sold to the government-sponsored entities. There are also talks about which liabilities would be covered in the announced amount of a deal. There are still state investigations and various other probes. The Justice Department has a minimum of seven different probes into JPM and they're reportedly trying to settle as many as possible in rapid fashion.

JPMorgan's litigation costs totaled $17.3 billion over the last three calendar years, according to the company's annual report. Add another $11 billion and soon you're talking real money; and yet for all that, remarkably, unbelievably, no senior executives have criminally charged. It's a whole lot of money, completely detached from personal responsibility. JPM has a ton of money. Earnings estimates are pegged around $22 billion for 2013 and the company has a market cap of about $200 billion. Is $11 billion enough of a payoff to get the regulators to leave Jamie Dimon alone?

This is just the cost of doing business for these mega banks. There's the rub. Paying off regulators and settling criminal charges is only supposed to be the "cost of doing business" for criminals. When the FBI goes after the Mafia the stated goal was putting them out of business. There is no specific goal when it comes to cracking down on Wall Street. Only a portion of the settlements collected go to the actual victims. For the most part the money is used to fund more investigations. As long as JPM's income exceeds its legal fees they have no economic incentive to stop pushing the law at every opportunity. 

Most of JPMorgan's penalties did not include an admission of wrongdoing, but last week's $920 million dollar settlement of the London Whale trades did include an admission of wrongdoing. JPMorgan had to confess to Sarbanes Oxley violations.

The reason that this is a big deal is Sarbanes Oxley was designed expressly to get past the “I’m the CEO and I have no idea what happened” defense. Sarbanes Oxley requires corporate executives, which generally is at least the CEO and the CFO, to certify the adequacy of internal controls. And for a big bank, that includes risk controls. You can’t pretend to have adequate controls when, as the SEC describes, management is shocked to learn that their trading desk in London is involved in wildly reckless trades. But it isn’t just banks that have to now take Sarbanes Oxley seriously, although they are the most obvious targets. Everyone who signs Sarbox certifications is now at risk, as they were supposed to be all along. Jamie Dimon has met all the conditions for a criminal prosecution under Sarbanes Oxley, and the only reason why he hasn't been indicted is he heads a Too Big To Fail bank.

And so there was a meeting today between AG Holder and Dimon, arguing about price.

Meanwhile, on an only slightly related note, a new report from In the Public interest reveals that private prison companies are striking deals with states that contain clauses guaranteeing high prison occupancy rates. The report, "Criminal: How Lockup Quotas and 'Low-Crime Taxes' Guarantee Profits for Private Prison Corporations," documents the contracts exchanged between private prison companies and state and local governments that either guarantee prison occupancy rates (essentially creating inmate lockup quotas) or force taxpayers to pay for empty beds if the prison population decreases due to lower crime rates or other factors (essentially creating low-crime taxes).

Some of these contracts require 90 to 100 percent prison occupancy. In a letter to 48 state governors in 2012, the largest for-profit private prison company in the US, Corrections Corporation of America (CCA), offered to buy up and operate public state prisons. In exchange, states would have to sign a 20-year contract guaranteeing a 90 percent occupancy rate throughout the term.

While no state accepted CCA’s offer, a number of private prison companies have been inserting similar occupancy guarantee provisions into prison privatization contracts and requiring states to maintain high occupancy rates within their privately owned prisons. Three privately run prisons in Arizona have contracts that require 100 percent inmate occupancy, so the state is obligated to keep its prisons filled to capacity. Otherwise it has to pay the private company for any unused beds. The report notes that contract clauses like this incentivize criminalization, and do nothing to promote rehabilitation, crime reduction or community building.

Tuesday, September 24, 2013 - Give Me Energy

Give Me Energy

by Sinclair Noe

DOW – 66 = 15,334
SPX – 4 = 1697
NAS + 2 = 3768
10 YR YLD - .05 = 2.65%
OIL - .30 = 103.29
GOLD + .80 = 1324.10
SILV + .10 = 21.84

The big unknown this week is the possibility of a government shutdown Sunday night. A few moments on that and then I'll get to my main topic here, which deals with energy. The shutdown could happen; with Congress, anything could happen. I've been trying to figure out the likelihood, and I don't think it is likely, although it could still happen. Of course the battle is over defunding Obamacare. And I remember the old rules for how a bill becomes law, and the checks and balances of our democratic republic.

The Affordable Care Act was duly enacted by a majority of both houses of Congress, signed into law by the President, and even upheld by the Supreme Court. The Constitution of the United States does not allow a majority of the House of Representatives to repeal the law of the land by defunding it. If that were the case, no law is safe. A majority of the House could get rid of unemployment insurance, federal aid to education, Social Security, Medicare, or any other law they didn't like merely by deciding not to fund them. If that were the case, then you could control everything in government with a simple majority in the House of Representatives; it would render every other branch of government superfluous.

There is a process for repealing a law; both houses enact a bill that repeals the old law, which must then be signed by the President. In the event of a presidential veto, the new bill can become law by over-riding the veto with a two-thirds vote of the House and Senate.

That's not going to happen, and so all the talk about a government shutdown is moving on a wrong path, and technically there should be no shutdown. We could still have a shutdown, but it's unlikely, or at least it would have to happen in a manner not yet laid out.

The Clinton Global Initiative is holding its annual meeting in New York this week. With demand for everything from food and water to rare earth minerals expected to continue to rise, companies and governments are increasingly undertaking a variety of efforts to develop a more sustainable supply chain, one of the topics highlighted at this week's meeting. Corporate leaders give themselves a lousy grade on their efforts to develop sustainable supplies of natural resources strained by a growing global population and a rapidly expanding middle class of consumers.

A recent survey conducted for the UN Global Compact found that more than two-thirds of CEOs of global corporations surveyed do not believe we are on track to meet the demands of a growing population. There are plenty of excuses for short-term complacency but looming in the not-so-distant future is resource scarcity, as in no water; no energy. Important stuff. Big challenges, and what many people overlook is even bigger opportunities.

There are 3,200 utilities that make up the US electrical grid, the largest machine in the world. These power companies sell $400 billion worth of electricity a year, mostly derived from burning fossil fuels in centralized stations and distributed over 2.7 million miles of power lines. Regulators set rates; utilities get guaranteed returns; investors get sure-thing dividends. It’s a model that hasn’t changed much since Thomas Edison invented the light bulb. And it’s doomed to obsolescence.

What’s afoot is a confluence of green energy and computer technology, deregulation, cheap natural gas, and political pressure that poses a mortal threat to the existing utility system. Just as 30 years ago, almost nobody had cell phones – just a few, big brick-like devices; today the cell phone has supplanted the land lines in most US homes. Likewise, the grid will become increasingly irrelevant as customers move toward decentralized homegrown green energy. Rooftop solar, in particular, is turning tens of thousands of businesses and households into power producers. Such distributed generation, to use the industry’s term for power produced outside the grid, is certain to grow.

Some utilities will get trapped in an economic death spiral as distributed generation eats into their regulated revenue stream and forces them to raise rates, thereby driving more customers off the grid. Some customers, particularly in the sunny West and high-cost Northeast, already realize that they don’t need the power industry at all.

A report issued earlier this year by the Edison Electric Institute (EEI), the utilities trade group, warned members that distributed generation and companion factors have essentially put them in the same position as airlines and the telecommunications industry in the late 1970s. “U.S. carriers that were in existence prior to deregulation in 1978 faced bankruptcy,” the report states. “The telecommunication businesses of 1978, meanwhile, are not recognizable today.”

Worldwide revenue from installation of solar power systems will climb to $112 billion a year in 2018, a rise of 44 percent, taking sales away from utilities, according to analysts at Navigant Research, which tracks worldwide clean-energy trends. A July report by Navigant says that by the end of 2020, solar photovoltaic-produced power will be competitive with retail electricity prices—without subsidies—“in a significant portion of the world.” Green-thinking communities such as San Francisco and Boulder, Colo., are starting to bypass local utility monopolies to buy an increasing portion of power from third-party solar and wind providers. Chicago recently doubled the amount of power it buys from downstate wind farms.

The solar and distributed generation push is being speeded up by a parallel revolution in microgrids. Those are computer-controlled systems that let consumers and corporate customers do on a small scale what only a Consolidated Edison or Pacific Gas & Electric could do before: seamlessly manage disparate power sources without interruption. Microgrids have long been used to manage emergency backup power systems. A 26-megawatt microgrid completed in 2011 kept the power on at the US Food and Drug Administration’s White Oak research center in the aftermath of Hurricane Sandy last year. It also saves the federal government an estimated $11 million a year in electricity costs. The microgrid’s ultimate potential, however, is in turning every person, company, or institution with a renewable energy power system into a self-sustaining utility. Imagine your house switching from power it generates itself to power from the grid the way a hybrid car switches from battery power to gasoline.

Businesses are adopting solar and smart microgrids at an escalating rate to beat rising power costs and burnish their green cred. Verizon is investing $100 million in solar and fuel-cell projects that will directly supply 19 offices and data centers in three states. Wal-Mart, with 4,522 locations in the US, expects to have 1,000 solar-powered stores by 2020. MGM Resorts International’s Mandalay Bay resort convention center in Las Vegas hired NRG to install a 6.2-megawatt solar system—enough to meet as much as 20 percent of Mandalay Bay’s demand. Wal-Mart US President Bill Simon extolled the virtues of the company’s solar program in March when he told an analyst at an investor meeting that solar was often cheaper than grid power. Besides, Wal-Mart has a lot of roofs.

The grid continues to shrink—US power use actually peaked in 2007—as distributed generation captures an increasing share from utility-generated power. There won’t be much need for new large-scale transmission lines after that, except perhaps to gather and distribute power from remote wind farms. 

There will always be a need for utilities to provide what’s called the “base load”—the minimum amount of power to keep essential services running—but no need for as many utilities as there are now. Most coal- and oil-fired plants are destined for extinction. Natural gas is already wiping out coal, and it’s going to wipe out most nuclear. This is going to set off the scramble for market among existing utilities that the EEI report anticipates. There’s going to be a strong fight to preserve share.

The utility industry is big, powerful, and well connected, and it won't just roll over. The big complaint from the utilities is about subsidies. Somebody has to keep the wires intact for solar users to send electricity back into the grid. In other words, people who don’t want or can’t afford to install solar are paying for those who do. And that ends up shifting a lot of the costs of maintaining the system to those who do not have means.

The quick growth of solar has surprised many, and the subsidy arguments aren’t necessarily unreasonable, but the tide has turned. And the direct generation model now exists and with technological advancements, we won't just be talking about solar in a few years; soon, we'll see major new breakthroughs. Utilities hold their own fate in their hands. They can do nothing but complain or moan about technological change or they can try to adapt.

Renewable energy has distinct advantages over the fossil fuel energy. You don’t need large amounts of capital to build it, you don’t need to produce it all in one place and use high-voltage transmission lines to transport it somewhere else. The idea that we would continue to have a centralized form of ownership and control of that system is really inconsistent with what the technology enables. The parity of unsubsidized solar and conventional electricity is soon going to change the energy dynamic; it is inevitable, and the only question is timing. The technology and energy sectors will no longer simply be one another’s suppliers and customers; they will be competing directly. For the technology sector, the first rule is: Costs always go down. For the energy sector and for all extractive industries, costs almost always go up. Given those trajectories, the coming tussle between sustainable, renewable, direct generation energy and conventional energy is not going to be a fair fight.

Now back to familiar territory. Bank of America heads to trial this week over allegations its Countrywide unit approved deficient home loans in a process called "Hustle," defrauding Fannie Mae and Freddie Mac, the government enterprises that underwrite mortgages.

This would be the government's first financial crisis case to go to trial against a major bank over defective mortgages, barring a last-minute settlement.

The Justice Department filed the civil lawsuit in 2012, blaming the bank for more than $1 billion in losses to Fannie Mae and Freddie Mac, which bought mortgages that later defaulted. Since then, new evidence and pre-trial rulings by US District Judge Jed Rakoff have pared the case back. Bank of America has said the lawsuit's claims are "simply false".

The government lawsuit stems from a whistleblower case brought by former Countrywide Financial executive Edward O'Donnell. It centers on a program called the "High Speed Swim Lane" - also called "HSSL" or "Hustle" - that government lawyers say Countrywide initiated in 2007 as mortgage delinquency and default rates began to rise and Fannie and Freddie tightened underwriting guidelines. Countrywide pushed to streamline its loan origination business through the program, eliminating loan quality checkpoints and paying employees based only on the volume of loans they produced, according to the lawsuit.

The Justice Department say the Hustle resulted in "rampant instances of fraud and other serious loan defects," in the mortgages sold to Fannie and Freddie, despite assurances Countrywide had tightened underwriting guidelines.

Fannie and Freddie's estimated "gross loss" on loans in the Countrywide program was $848 million, according to court papers. The "net loss" - the loss caused by the portion of loans the Justice Department says were materially defective - was $131 million. While the jury will determine if the bank is liable, any penalty would be up to Rakoff, a judge well-known for his rulings in financial crisis cases.

In 2010, Rakoff rejected a $33 million settlement between Bank of America and the SEC over claims it did not properly disclose employee bonuses and financial losses at Merrill Lynch, which it acquired at the end of 2008.

The bank ultimately agreed to a renewed settlement paying $150 million in an accord Rakoff "reluctantly" approved. In November 2011, he rejected a $285 million settlement between the SEC and Citigroup, challenging the long-standing practice of settlements without admissions of wrongdoing.

Meanwhile, a US credit union regulator has sued 13 banks over alleged manipulation of LIBOR, claiming credit unions lost millions of dollars in interest income as a result of rate-rigging.

LIBOR, which stands for the London Interbank Offered Rate, is the benchmark interest rate for trillions of dollars of credit cards, mortgages, student loans, variable interest-rate notes and other lending products. The banks are accused of artificially manipulating LIBOR between 2005 and 2010 by falsely reporting the interest rates at which they were able to borrow. A couple of banks have already settled with some regulators; you know, without admitting wrongdoing.

The complaint, filed in US District Court in Kansas, says the credit unions held tens of billions in investments and other assets that paid interest streams pegged to LIBOR. The lawsuit says that as a direct result of the conspiracy, which violated state and federal anti-trust laws, the credit unions received less in interest income than they were otherwise entitled to receive.

The National Credit Union Administration brought the lawsuit against JPMorgan Chase, Credit Suisse Group, UBS and 10 other international banks on behalf of five failed credit unions. For JPMorgan, this is just part of an ongoing and seemingly endless stream of lawsuits.

Why are we not surprised that nothing has been done to break up the too-big-to-fail banks, the biggest now being Dimon's? Don't be fooled by the occasional fines; the banks have used the interest-free money to grow ever larger and more unaccountable in their behavior.

Even last week's nearly $1 billion SEC settlement over the London Whale trading debacle, while mentioning the despicable behavior of JPMorgan's chief executive, fails to utter Dimon's name, and the whole issue of misinforming investors and the public is conspicuously absent from the SEC findings and settlement.

After the SEC condemnation of JPMorgan's "egregious breakdowns in controls" and conclusion that "senior management broke a cardinal rule of corporate management" to honestly inform the board of directors, Dimon promised to beef up the compliance department. This was just the sort of commitment Dimon made in 2006 when he hired Stephen M. Cutler, who had been head of the SEC Division of Enforcement, to be JPMorgan's general counsel. Yes, the same Stephen Cutler who was in charge of legal and compliance activities worldwide at the time of the London Whale fiasco.  

Monday, September 23, 2013 - Almost Reality

Almost Reality

by Sinclair Noe

DOW – 49 = 15,401
SPX – 8 = 1701
NAS – 9 = 3765
10 YR YLD - .03 = 2.70%
OIL – 1.37 = 103.38
GOLD – 3.30 = 1323.30
SILV - .16 = 21.74

If we remain on our current trajectory, in about one week the government will shut down. It doesn't shut down everything and not all at once, but it is a pretty big deal. Here's how it might affect you:

Many federal workers will be furloughed, and they might even receive pay retroactively. Not all fed workers stay home; air traffic controllers, meat inspectors, and a few others will remain on the job. The post office will continue to deliver mail. National parks will be closed. The military will still report to duty but they will be paid in IOUs ( I still haven't heard if they can cash the IOUs to buy bread but I'm sure somebody is figuring that out). Social Security checks will be mailed more or less as usual. No gun permits will be issued. The IRS will continue to collect taxes. No government loans to small businesses. Trash collection in Washington DC will stop; that's a federal job and not considered essential (give it a couple of weeks and that might change). The Republicans want to defund Obamacare in exchange for funding the government. But the health care act at the center of this storm would continue its implementation process during a shutdown. That's because its funds aren't dependent on the congressional budget process. And finally, both the Senators and the House of Representatives will continue to get a paycheck. Go figure. All the politicians say a shutdown is a bad idea, so I guess that means there's a good chance it will happen.

Of course last week, the market moving news was “no taper” from the Federal Reserve. The Fed is still concerned about a variety of things, including frothy markets, and so since the “no taper” announcement, or actually a non-announcement, the Fed has been talking down the markets. Last Friday, St. Louis Fed President James Bullard said taper could happen in October.

Today, Dallas Fed President Richard Fisher warned that by standing pat the Fed had hurt its credibility and said he had urged colleagues to support a $10 billion reduction in the Fed's bond-buying program at last week's meeting.

At a separate event, William Dudley, president of the Federal Reserve Bank of New York, said in a speech the timeline that Fed Chairman Ben Bernanke articulated in June for scaling back the central bank's stimulus measures is "still very much intact," as long as the economy keeps improving. Dudley says the Fed still needs to push hard against threats to the economic recovery, and fiscal uncertainties in particular "loom very large right now." 

Over the weekend there was an election in Germany. Angela Merkel won – big. Merkel's Christian Democratic Union and its sister party, the Christian Social Union, won 41.5% of the vote, with analysts calling the win a personal victory for the 59-year-old. Merkel is on track to overtake Margaret Thatcher as Europe's longest-serving female leader. The historical dimensions of the election were clear, with Merkel set to become just the third postwar chancellor to secure three election wins, after Konrad Adenauer and Helmut Kohl. She has also bucked the European trend by becoming the only leader in the eurozone, from left or right, to be re-elected since the snowballing of the eurozone crisis in 2010. Out of 17 countries, 12 governments have fallen, indicating how protected Germans feel from the crisis under Merkel's leadership.

Germany is not an island, it has benefited from membership of the euro, presenting it with an in effect undervalued currency, and the fortuitous explosion in demand for its high-quality manufactured goods by China; but Germany also has some real concerns, such as income inequalities, awful demographic projections, faltering investment levels, crumbling infrastructure, and inadequacies in higher education and in research and development. Post-election Germany will have a similar approach to pre-election Germany: legalistic, cautious and resistant to grand plans and gestures, no matter how much its European neighbors are looking to it to act.

Today marks an historic day for entrepreneurship and early stage finance, as Title II of the JOBS Act goes into effect. For the first time in nearly 80 years, private startups and small businesses can raise investment funding publicly, through general solicitation including: radio, TV, print, and internet, including sites like Facebook or Twitter to help spread the word, and taking in investment online via equity crowdfunding sites who power the investment process in a more open and collaborative way.

Before today, publicly advertising the fact that you were raising investment (general solicitation) was against the law for early stage private companies. Fundraising from the general public was the exclusive domain of larger companies who can afford to spend the millions it takes to become listed on stock exchanges like the NASDAQ.

But now, as a result of Title II, early stage investing has become more public, kicking off one of the largest new capital markets in our time. Back in 1933, when the Securities Act was passed, it created a ban on general solicitation (advertising investments to the general public for private companies). At the time, radio was the dominant communication medium, and there was little access to open information, education, or disclosures to help protect investors.

While these laws passed in 1933 helped reduce fraud at the time, they also had unintended consequences that hurt honest everyday small business owners and entrepreneurs, restricting them in their efforts to attract potential investors and critical seed and growth capital.

The world has changed since 1933, and early stage investing has been long overdue to catch up. Today, as these laws finally roll out, we now have clarity and a path for open and public fundraising for startups and small businesses. In short, companies who file Form D with the SEC prior to doing so can generally solicit to the public. Within 15 days from soliciting they must disclose additional information about the solicitation.

To simplify the details down for you, here are the basics:

For Startups & Small Businesses:

You can now generally solicit and advertise publicly; only accredited investors can actually invest in generally solicited companies; file Form D with the SEC before you begin soliciting, letting them know you will; disclose details about your general solicitation to the SEC within 15 days from first solicitation; strict verifications done by companies are required to confirm that each investor is accredited; the penalty for not adequately meeting and following general solicitation requirements with the SEC is being banned from fundraising for a full year.

For Investors:

Only accredited investors can invest in companies who generally solicit; qualifying as accredited means having $1 million in net worth, or making over $200,000 a year for the past 3 years; investors will need to prove accredited investors status, which can be done through written confirmation by a CPA, attorney, investment advisor, or Broker-Dealer, or income-related IRS forms.

 For companies fundraising, the growth of these capital markets and the movement towards online systems and investment crowdfunding is going to bring much greater potential access to capital and opportunity. Most early stage entrepreneurs don’t have an existing network of wealthy potential investors, and fundraising is hard.

Now that the general solicitation ban is lifted, within a matter of days startups and small businesses can leverage the internet and other marketing tools for their fundraising, to reach potentially thousands of potential investors. Prior to this, reaching a targeted audience of 20 or more active investors often took 4 to 6 months.

According to current regulations, businesses may not raise money with non-accredited investors. Title III of the JOBS Act will create rules and a path for non-accredited investors to begin investing in companies, but the SEC has yet to finalize any rulings. The timing of Title III is expected to include a proposal and a commenting period coming this Fall, and for finalized rulings and a vote in early 2014.

It's a brave new world, and as always, caveat emptor. Some people think the JOBS Act will lead to fraudulent activity by startups, but we don't need the JOBS Act for that. Today we learn the Justice Department is preparing to sue JPMorgan on civil violations of securities laws in offering mortgage bonds from 2005 to 2007 that were backed by subprime and other risky residential mortgages. The bank disclosed in August that federal prosecutors in California were conducting criminal and civil investigations into the bank's mortgage securities.

Five years after the financial crisis, sparked, at least in part by banks and mortgage lenders who claimed that toxic loans were in fact AAA-worthy -- wiped out trillions of dollars of wealth and led to demands for accountability. There had been widespread fraud, after all, and somebody had to pay. And so federal prosecutors teamed up with three other federal agencies to launch and execute a major criminal investigation. And finally they have a high profile indictment.

Teresa and Joe Giudice, (I'm not sure about the pronunciation. Judy-Chay?) stars of Bravo's "Real Housewives of New Jersey." Their crime? Lying to banks on mortgage applications. U.S. Attorney Paul J. Fishman said, "Everyone has an obligation to tell the truth when dealing with the courts, paying their taxes and applying for loans or mortgages. That’s reality." Get it? The prosecutor told a funny; that's reality, because they are on a reality TV show. While the federal prosecutors were cracking jokes and patting themselves on the back for taking down the Giudices, the leaders of the Wall Street firms actually responsible for doing catastrophic damage to the financial system remained free to enjoy the money they made while overseeing the near-collapse of the global economy. That's reality.

Thursday, September 19, 2013 - Shine On You Crazy Dimons

Shine On You Crazy Dimons

by Sinclair Noe

DOW – 40 = 15,636
SPX – 3 = 1722
NAS + 5 = 3789
10 YR YLD +.06 = 2.75%
OIL + .04 = 106.43
GOLD - .20 = 1366.10
SILV + .13 = 23.19

No taper, despite hints and great expectations. Having announced the intention to taper, ultimately, a few weeks later, the proposal was shelved. The reasons given were concerns about the strength of the economic recovery and the impact of high rates on the ability of an over-indebted world to continue to meet its obligations. All these factors were largely unchanged between the time of the original announcement and the repudiation.

What did change was the taper tantrum, the unpleasant market reaction to the hint of taper. Bond yields rose sharply; the Fed's tough talk has already led to a 140 basis point rise in 10-year Treasury yields, which would be roughly equivalent to six rate increases; that in turn resulted in pushing mortgage rates higher, putting a crimp in the housing recovery. Today we learned home sales were up. Sales of previously owned homes unexpectedly rose in August to the highest level in more than six years as buyers rushed to lock in interest rates before they jumped even higher.

The labor "participation rate" dropped to 63.2% in July, the lowest level since the late 1970s. The rate for men is at an all-time low. The unemployment rate has been falling, but chiefly because so many people are giving up hope and dropping off the rolls.

Fed governors tried to pass this off as a structural problem; due to evolving technology, or a "skills mismatch", or that catch-all concept "demographics". No doubt this is half true. But half truths also go by another name. Chronic lack of demand is the real villain is this jobs slump. The problem is not that the labor market is under performing; it is that the recovery has been very slow.

The economy has weathered the most draconian fiscal tightening (2.5% of GDP this year) since the end of the Korean War remarkably well, helped by shale gas, but it is not yet at "escape velocity". The fiscal squeeze goes on. The International Monetary Fund has advised Washington to go easy, citing an "output gap" of 4.6% of GDP. The Dallas Fed's measure of core inflation was 1.2% in July. Growth of the M1 money supply is the slowest in two years, while growth of broad M3 has slowed to the point where it could turn negative without QE. The inflation threat is a fiction; it could be a problem at some point, but not today.

The US dollar rose sharply and stocks sold off, and emerging markets sold off even harder. The BRICS have been hit hard already and given the dangers of another euro-zone debt hemorrhage, which happened after the end of QE1 and QE2, it would be a globally rude gesture to taper.

Ultimately, most market prices, except interest rates, headed back to where they roughly started before the taper talk. Billions of dollars were gained and lost in the zero sum marketplace casinos that constitute the modern economy. And really that seems to be the determinant factor for the Fed. The Bernanke Fed has twice misjudged the global effects of premature tightening already, each time precipitating a credit and stock market crash within weeks, and each time forcing the Fed to capitulate. The exit from QE3 will be ugly, when it eventually arrives.

A paper by former Fed governor Frederic Mishkin, "Crunch Time", warns that the Fed will struggle to extract itself from QE if it delays until 2014. It may drown from losses on its $3.6 trillion of bond holdings as yields rise. The Fed's own balance sheet is at risk, and the risks may indeed outweigh the rewards. Certainly some Fed policymakers would like to head for the exits, but they would like to exit without imploding the Wall Street debt machine; and that may not be realistic.

If QE as conducted is causing asset bubbles, then we should deploy central bank stimulus more creatively, should it prove necessary. We know how to do it. The methods were pioneered by Takahashi Korekiyo, who pulled Japan out of the Great Depression early in the 1930s. His feat is now the model for what Japan is doing again under Abenomics.

Takahashi turned the Bank of Japan into an arm of the treasury - "fiscal dominance" - and ordered it to finance the budget deficit. You can deploy QE in any way you want. It could be used to build houses, or to build infrastructure, or other ways of injecting the money directly into the veins of the economy, instead of the veins of hedge funds. There is no reason why it cannot be administered by an independent Fed, choosing the calibration level as they see fit.

Don't hold your breath. At this point, Bernanke seems content to leave the fuse burning on the financial weapons of mass destruction, as he rides off into the sunset.

Of course, the whole mess could implode, if the US decides it doesn't want to pay its bills. And that is looking more and more possible. The White House promised a veto of a Republican effort to gut President Barack Obama's health care law as part of a temporary funding bill in the House to prevent a partial government shutdown on Oct. 1.

The official policy statement said the GOP attempt to block Obamacare “advances a narrow ideological agenda that threatens our economy and the interests of the middle class" and would deny "millions of hard-working, middle-class families the security of affordable health coverage."

The veto threat was expected and wasn't going to stop House Republicans from pressing their effort to defund the health care law. Republicans in the House spent Wednesday talking about how hard they would fight to derail the health care law on the eve of its implementation and weren't conceding that their Senate rivals would undo their handiwork. A key force in the tea party drive against the law conceded the point even before the fight officially began, but urged the House to force a government shutdown rather than retreat.

The rhetoric will likely fade in the harsh light of an actual shutdown, but then again Congress is a hot mess. The Obama administration's budget director, Sylvia Burwell, issued a memo to department heads that said, "Prudent management requires that agencies be prepared for the possibility of a lapse" in funding.

In the years since the financial crisis, we may not have solved too big to fail, sent any bankers to jail, or done much to prevent another financial crisis, and we certainly haven't changed Wall Street's devotion to money-making at all costs.

But we at least have finally gotten a bank to admit it broke the law.

In what amounts to a relatively stirring triumph of justice on Wall Street, the SEC has convinced JPMorgan Chase to admit that it broke federal securities laws in its handling of the $6.2 billion "London Whale" trading debacle.

The SEC press release says: "JPMorgan failed to keep watch over its traders as they overvalued a very complex portfolio to hide massive losses..., While grappling with how to fix its internal control breakdowns, JPMorgan's senior management broke a cardinal rule of corporate governance and deprived its board of critical information it needed to fully assess the company's problems and determine whether accurate and reliable information was being disclosed to investors and regulators."

Jamie Dimon in a separate statement said: "We have accepted responsibility and acknowledged our mistakes from the start, and we have learned from them and worked to fix them." Which is true, depending on what Dimon means by "from the start." When the London Whale story first broke in the spring of 2012, Dimon infamously dismissed it as a "tempest in a teapot." He has since repeatedly admitted that the bank erred, although this is the first time it has admitted breaking laws.

JPMorgan also agreed to pay $920 million to the SEC and other agencies to settle various London Whale charges. That is quite a lot of money to you and me, more than twice the size of the current Powerball jackpot. And for JPMorgan it amounts to little more than 13 days' profits, and nothing more than the cost of doing business.

But it does mark a turning point, finally there has been an admission of wrongdoing. Finally.

But wait, there's more. Today, bank regulators also ordered JPMorgan to  correct its debt collection and other credit card procedures and to refund more than $300 million to customers harmed by the bank's practices. In separate orders, regulators faulted the bank for errors in how it pursued credit-card debts in court, and for charging customers for credit-monitoring services they never received.

The Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency ordered the bank to refund $309 million to about 2 million customers charged for the credit-monitoring services. The orders also include $80 million in penalties. The OCC also ordered the bank to review past debt collections and compensate customers affected by errors. It did not provide details of how extensive the debt-collection problems were. That order did not include financial penalties, but left the door open to future fines.

At some point, you have to wonder how long a chronic offender can continue before we say, enough is enough.